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Sasol rights issue no longer on the table as interim earnings leap

(Photo: Waldo Swiegers / Bloomberg via Getty Images)

A few months ago, Sasol was on the ropes as oil prices tanked and its business model crumbled. On Monday, it unveiled a jump in interim earnings and said it no longer had to pursue a rights issue. A sea change in oil markets, cost controls and asset disposals has helped Sasol turn its fortunes around in dramatic fashion.

Petrochemicals giant Sasol said on Monday that its headline earnings for the six months to the end of December 2020 almost tripled to R15.3-billion from R4.5-billion in the same period the year before. This also comes six months after it reported a full-year loss of more than R90-billion. Talk about a roller coaster. 

A number of factors are behind this comeback. Cost containment is one. The company brought its costs down by 10% and CFO Paul Victor told Business Maverick in an interview that this was effectively 13% if inflation is included. 

Sasol has also realised $3.3-billion in asset sales – $2.5-billion for the period under review, with another $700-million in the pipeline. Such initiatives helped to offset a 23% decrease in the average rand per barrel price of Brent crude oil for the period. The earnings also got a positive lift from various “non-cash adjustments”, to use the arcane language of accountants. 

The oil price has rebounded from negative territory in 2020 to more than $60 a barrel. Victor Told Business Maverick that Sasol is now positioned to make a profit at $45 a barrel. 

Among other things, this means that a mooted rights issue is now off the table. 

“A decision was made not to pursue a rights issue given the current macroeconomic outlook, and the significant progress made on our response plan initiatives,” Sasol said in a statement. 

The prospect of a rights issue in 2020 as the economy and oil markets were in full meltdown set nerves jangling at Sasol’s head office. 

“It’s such a weight off our shoulders… as a shareholder myself, you don’t want to do a rights issue if you don’t have to,” Victor told Business Maverick.

The company is making progress on debt reduction, with its total debt at the end of December amounting to R126.3-billion compared with R189.7-billion as at 30 June 2020. Sasol’s board also approved the final investment decision (FID) on a $760-million gas project in Mozambique. A pivot to gas is part of Sasol’s strategy to green its asset base.  

The year ahead looks brighter than it did a few months ago, but it is early days yet and it remains to be seen if the rally in oil prices will be sustained. 

Sasol is also continuing its probe into an apparent sulphur stench that shrouded parts of Gauteng and Mozambique last week.

Where there’s sulphur, there’s fire: What was behind the big stench over Gauteng and Mpumalanga?

Sasol has not found any evidence that its Secunda plant, where coal is processed into synthetic fuel and chemicals, was the source, which the department of environment is also probing. 

As South Africa’s second-biggest emitter after Eskom of the greenhouse gases linked to climate change, Sasol’s record on this front will be under intense scrutiny as it strives to reduce its carbon footprint. 

“If the public is concerned, you need to be concerned, so we are doing more investigations,” Victor said. In the meantime, Sasol executives don’t have to hold their nose when presenting their latest set of financial results. DM/BM

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